question
(T/F) Short run producer surplus is equal to profits plus fixed costs
answer
True
question
(T/F) When maximizing profits a firm will always be equating the marginal expense of labor to the marginal expense of capital.
answer
False
question
(T/F) The common profit maximization problem of a firm is to maximize profits subject to a quantity constraint
answer
False
question
The marginal revenue product of labor . . .
A.
Is the amount a firm saves by employing another worker.
B.
is equal to marginal revenue times the marginal product of labor
C.
Depends on the market wage paid by other firms.
D.
sings "the cheese stands alone."
A.
Is the amount a firm saves by employing another worker.
B.
is equal to marginal revenue times the marginal product of labor
C.
Depends on the market wage paid by other firms.
D.
sings "the cheese stands alone."
answer
B.
is equal to marginal revenue times the marginal product of labor
is equal to marginal revenue times the marginal product of labor
question
If a firm is a price taker its marginal revenue is:
A.
Zero
B.
Constant
C.
Decreasing as quantity produced increases
D.
Increasing as quantity produced increases
A.
Zero
B.
Constant
C.
Decreasing as quantity produced increases
D.
Increasing as quantity produced increases
answer
B.
Constant
Constant
question
If a non-price taking firm produces where demand is inelastic, marginal revenue will be...
A.
Imaginary
B.
Positive
C.
Zero
D.
Negative
A.
Imaginary
B.
Positive
C.
Zero
D.
Negative
answer
D.
Negative
Negative
question
(T/F) In the very short run the demand curve is perfectly inelastic (vertical), so the position of the supply curve determines market price.
answer
False
question
(T/F) The patterns in 20th century U.S. wage inequality are best (most completely) attributed to the increase in foreign trade during this time period.
answer
False
question
(T/F) As shown in a class example, a corporate income tax can reduce business investment if the cost accounting system differs from the internal cost accounting of the business decision makers.
answer
True
question
Given that the relative wages of high skilled workers rose sharply in the 1970's and 1980's while the relative quantity of high skilled labor was increasing. Where should we look to explain the wage increase.
A.
A Shift in Supply
B.
A Shift in Demand
C.
A Shift in Consumer Preferences
D.
A Shift in the Earth's Axis
A.
A Shift in Supply
B.
A Shift in Demand
C.
A Shift in Consumer Preferences
D.
A Shift in the Earth's Axis
answer
B.
A Shift in Demand
A Shift in Demand
question
For a given shift in supply . . .
A.
A more elastic demand curve would see prices change more and quantities change less.
B.
A more inelastic demand curve would see prices change less and quantities change more
C.
A more inelastic demand curve would see prices change more and quantities change less.
D.
The elasticity of demand is irrelevant to price and quantity changes.
A.
A more elastic demand curve would see prices change more and quantities change less.
B.
A more inelastic demand curve would see prices change less and quantities change more
C.
A more inelastic demand curve would see prices change more and quantities change less.
D.
The elasticity of demand is irrelevant to price and quantity changes.
answer
C.
A more inelastic demand curve would see prices change more and quantities change less.
A more inelastic demand curve would see prices change more and quantities change less.
question
(T/F) If the price of good x increases and the demand for good y decreases then the goods x and y are gross substitutes
answer
False
question
(T/F) The graphical change in the area above the price and between the Hicksian demand curve and the price axis, is a theoretically appealing way of measuring the effect of a price change on consumer welfare.
answer
True
question
(T/F) In a two good world there can never be goods that are net complements.
answer
True
question
Which of the following statements about the elasticities is not true.
A.
An elasticity is the ratio of two percentage changes.
B.
Our comparative statics derivatives, such as the effect of own price on optimal quantity can be reweighted to make elasticities.
C.
Elasticities correct the problem of scale involved in comparing different changes for one good, but we still should not compare elasticities across goods.
D.
We can manipulate a consumer's budget constraint to create a relationship among income elasticities and expenditure shares.
E.
All the above are true statements.
A.
An elasticity is the ratio of two percentage changes.
B.
Our comparative statics derivatives, such as the effect of own price on optimal quantity can be reweighted to make elasticities.
C.
Elasticities correct the problem of scale involved in comparing different changes for one good, but we still should not compare elasticities across goods.
D.
We can manipulate a consumer's budget constraint to create a relationship among income elasticities and expenditure shares.
E.
All the above are true statements.
answer
C.
Elasticities correct the problem of scale involved in comparing different changes for one good, but we still should not compare elasticities across goods.
Elasticities correct the problem of scale involved in comparing different changes for one good, but we still should not compare elasticities across goods.
question
When adding individual demands to create a market demand we should pay special attention to.....
A.
Putting quantity on the vertical axis because it is the dependent variable.
B.
Utility functions, because they are ordinal not cardinal.
C.
The price of the good in question, since it may be different for different consumers.
D.
The income of each consumer, since changes for different consumers may affect demand differently.
A.
Putting quantity on the vertical axis because it is the dependent variable.
B.
Utility functions, because they are ordinal not cardinal.
C.
The price of the good in question, since it may be different for different consumers.
D.
The income of each consumer, since changes for different consumers may affect demand differently.
answer
D.
The income of each consumer, since changes for different consumers may affect demand differently.
The income of each consumer, since changes for different consumers may affect demand differently.
question
(T/F) If leisure is a normal good, our theory predicts that an increase in the wage will lead to an ambiguous change in labor supply.
answer
True
question
(T/F) The fundamental tradeoff in welfare programs says that in order to better target resources at the most needy, you have to give them incentives to work more.
answer
False
question
(T/F) Our simple class model predicts that the existence of social security reduces privately held savings.
answer
True
question
According to the applications of the consumer model we discussed in class. Which of the following statements is not true.
A.
Some individuals might respond to a wage increase by working less.
B.
A public education system which offers a non-tradeable, fixed amount education will cause some people to consume less education.
C.
Traditional welfare programs provided many low income people with incentives to work less.
D.
Social Security cannot increase the sum of government and private saving.
E.
All of the above are true.
A.
Some individuals might respond to a wage increase by working less.
B.
A public education system which offers a non-tradeable, fixed amount education will cause some people to consume less education.
C.
Traditional welfare programs provided many low income people with incentives to work less.
D.
Social Security cannot increase the sum of government and private saving.
E.
All of the above are true.
answer
D.
Social Security cannot increase the sum of government and private saving.
Social Security cannot increase the sum of government and private saving.
question
Which of the following statements about the elasticity relationships discussed in class is not true.
A.
The Slutsky equation can be rewritten in terms of total, income and substitution elasticities
B.
The income elasticities of all goods in the model, weighted by their respective budget shares, must sum to 1.
C.
The own price, cross price, and income elasticities for a single good must sum to 1.
D.
We can manipulate a consumer's budget constraint to create a relationship among income elasticities and expenditure shares.
A.
The Slutsky equation can be rewritten in terms of total, income and substitution elasticities
B.
The income elasticities of all goods in the model, weighted by their respective budget shares, must sum to 1.
C.
The own price, cross price, and income elasticities for a single good must sum to 1.
D.
We can manipulate a consumer's budget constraint to create a relationship among income elasticities and expenditure shares.
answer
C.
The own price, cross price, and income elasticities for a single good must sum to 1.
The own price, cross price, and income elasticities for a single good must sum to 1.
question
Which of the following statements about the labor leisure model is true.
A.
The consumer has a utilty function that represents preferences over labor and leisure.
B.
The price of leisure is equal to the wage.
C.
The consumers "full income" is the amount of consumption the individual gets if he chooses leisure = T.
D.
Giving the individual non-labor income must cause him to work more.
A.
The consumer has a utilty function that represents preferences over labor and leisure.
B.
The price of leisure is equal to the wage.
C.
The consumers "full income" is the amount of consumption the individual gets if he chooses leisure = T.
D.
Giving the individual non-labor income must cause him to work more.
answer
B.
The price of leisure is equal to the wage.
The price of leisure is equal to the wage.
question
(T/F)Decreasing returns to scale for a production function means that if all inputs are doubled, output will be less than doubled.
answer
True
question
The average product of labor reaches its maximum . . .
A.
at the point of inflection of the total product curve.
B.
where the slope of the total product curve is steepest
C.
where the slope of the marginal product curve is zero
D.
where marginal and average productivity are equal
E.
Both C and D.
A.
at the point of inflection of the total product curve.
B.
where the slope of the total product curve is steepest
C.
where the slope of the marginal product curve is zero
D.
where marginal and average productivity are equal
E.
Both C and D.
answer
D.
where marginal and average productivity are equal
where marginal and average productivity are equal
question
A firm's isoquant shows . . .
A.
The combinations of capital and labor that will produce a certain amount of output.
B.
The amount of labor needed to produce a given level of output with capital held constant.
C.
The combinations of capital and labor that cost the same amount
D.
The capital, labor combinations associated with a certain marginal productivity of labor.
A.
The combinations of capital and labor that will produce a certain amount of output.
B.
The amount of labor needed to produce a given level of output with capital held constant.
C.
The combinations of capital and labor that cost the same amount
D.
The capital, labor combinations associated with a certain marginal productivity of labor.
answer
A.
The combinations of capital and labor that will produce a certain amount of output.
The combinations of capital and labor that will produce a certain amount of output.
question
Graphically the average product of labor is illustrated by . . .
A.
The slope of the total product curve
B.
The slope of the marginal product curve
C.
The slope of the line segment connecting the origin with the relevant point on the total product curve.
D.
The slope of the line segment connecting the origin with the relevant point on the marginal product curve.
A.
The slope of the total product curve
B.
The slope of the marginal product curve
C.
The slope of the line segment connecting the origin with the relevant point on the total product curve.
D.
The slope of the line segment connecting the origin with the relevant point on the marginal product curve.
answer
C.
The slope of the line segment connecting the origin with the relevant point on the total product curve.
The slope of the line segment connecting the origin with the relevant point on the total product curve.
question
Which of the following production functions exhibits a constant elasticity of substitution
A.
q = 3K + 2L
B.
q = Kœ Lœ .
C.
q = min(K,L).
D.
all of the above
E.
A and C only.
F.
A and B only.
A.
q = 3K + 2L
B.
q = Kœ Lœ .
C.
q = min(K,L).
D.
all of the above
E.
A and C only.
F.
A and B only.
answer
D.
all of the above
all of the above
question
(T/F) According to our growth accounting formula, less than half of U.S. output growth in the early 20th century was explained by labor and capital increases.
answer
True
question
(T/F) There is no difference between the notions of firm costs used by economists and those used by accountants.
answer
False
question
(T/F) If we know the firms quantity to be produced we can find the optimal inputs to use through a maximization problem that uses an isocost line as the constraint.
answer
False
question
For a firm with constant returns to scale:
A.
The long run total cost function will be quadratic
B.
The Long run average and marginal cost functions will always be equal
C.
The long run marginal cost function will always be below the average cost function.
D.
The cost minimization problem will always yield an interior solution.
A.
The long run total cost function will be quadratic
B.
The Long run average and marginal cost functions will always be equal
C.
The long run marginal cost function will always be below the average cost function.
D.
The cost minimization problem will always yield an interior solution.
answer
B.
The Long run average and marginal cost functions will always be equal
The Long run average and marginal cost functions will always be equal
question
In the short run . . .
A.
All inputs are fixed
B.
Firms will optimally choose a quantity of labor that would be efficient in the long run.
C.
The firm has short run average cost curves that are above their long run average costs except at one point.
D.
The firm has short run marginal cost curves that do not intersect their long run average costs.
A.
All inputs are fixed
B.
Firms will optimally choose a quantity of labor that would be efficient in the long run.
C.
The firm has short run average cost curves that are above their long run average costs except at one point.
D.
The firm has short run marginal cost curves that do not intersect their long run average costs.
answer
C.
The firm has short run average cost curves that are above their long run average costs except at one point.
The firm has short run average cost curves that are above their long run average costs except at one point.
question
For a firm with the total cost function TC* = q.8v.4w.6 which of the following statements are true.
A.
The firm faces decreasing average costs
B.
An increase in either the price of labor (w) or the price of capital (v) will increase the firms Total costs.
C.
The firm has Marginal costs greater than Average costs for small values of q.
D.
All of the above are true
E.
None of the above are true
F.
Only A and B are true
A.
The firm faces decreasing average costs
B.
An increase in either the price of labor (w) or the price of capital (v) will increase the firms Total costs.
C.
The firm has Marginal costs greater than Average costs for small values of q.
D.
All of the above are true
E.
None of the above are true
F.
Only A and B are true
answer
F.
Only A and B are true
Only A and B are true
question
"I just can't decide whether I would rather go swimming or watch TV."
This statement violates which axiom(s)
A.
Completeness
B.
Transitivity
C.
Continuity
D.
Monotonicity
E.
Convexity
F.
None
This statement violates which axiom(s)
A.
Completeness
B.
Transitivity
C.
Continuity
D.
Monotonicity
E.
Convexity
F.
None
answer
A.
Completeness
Completeness
question
After I've eaten 2 ice cream cones, I don't want anymore."
This statement violates which axiom(s)?
A.
Completeness
B.
Transitivity
C.
Continuity
D.
Monotonicity
E.
Convexity
F.
None
This statement violates which axiom(s)?
A.
Completeness
B.
Transitivity
C.
Continuity
D.
Monotonicity
E.
Convexity
F.
None
answer
D.
Monotonicity
Monotonicity
question
"If you give me a ticket to the basketball game , I'll give you my season pass to this year's football games."
This statement violates which axiom(s)
A.
Completeness
B.
Transitivity
C.
Continuity
D.
Monotonicty
E.
Convexity
F.
None
This statement violates which axiom(s)
A.
Completeness
B.
Transitivity
C.
Continuity
D.
Monotonicty
E.
Convexity
F.
None
answer
F.
None
None
question
Choose the one correct answer:
For a utility function that follows our preference axioms, indifference curves . . .
A.
Do not intersect
B.
Are contour lines of the utility function
C.
Have a positive Marginal Rate of Substitution
D.
Cannot have bliss points
E.
All of the above
F.
a,b,and c only.
G.
a,b, and d only.
For a utility function that follows our preference axioms, indifference curves . . .
A.
Do not intersect
B.
Are contour lines of the utility function
C.
Have a positive Marginal Rate of Substitution
D.
Cannot have bliss points
E.
All of the above
F.
a,b,and c only.
G.
a,b, and d only.
answer
E.
All of the above
All of the above
question
Choose the one correct answer.
The Marginal Rate of Substitution (MRS) is important because it...
A.
tells me the kind of trades I could make to increase my utility.
B.
gives a negative or positive number that represents preferences.
C.
is decreasing only when the convexity assumption is violated.
D.
relates the tradeoffs involved when moving along an indifference curve.
The Marginal Rate of Substitution (MRS) is important because it...
A.
tells me the kind of trades I could make to increase my utility.
B.
gives a negative or positive number that represents preferences.
C.
is decreasing only when the convexity assumption is violated.
D.
relates the tradeoffs involved when moving along an indifference curve.
answer
D.
relates the tradeoffs involved when moving along an indifference curve.
relates the tradeoffs involved when moving along an indifference curve.
question
Select the one correct answer.
Suppose that we are asked to compare two utility functions in a world with two goods, x and y.
U=x*y
V=10(x*y)
Which of the following statements is true?
A.
A person with utility function V is ten times as happy as a different person with utility function U.
B.
These functions could both represent the same set of preferences.
C.
A person with utility function V is ten times as happy as the same person if he had utility function U.
D.
All of the above are true.
Suppose that we are asked to compare two utility functions in a world with two goods, x and y.
U=x*y
V=10(x*y)
Which of the following statements is true?
A.
A person with utility function V is ten times as happy as a different person with utility function U.
B.
These functions could both represent the same set of preferences.
C.
A person with utility function V is ten times as happy as the same person if he had utility function U.
D.
All of the above are true.
answer
B.
These functions could both represent the same set of preferences.
These functions could both represent the same set of preferences.
question
The lump sum principle says taxes on income make people less happy than taxes on one good.
True
False
True
False
answer
False
question
An indirect utility function tells us a person's utility level as a function of prices and income rather than as a function of goods consumed.
True
False
True
False
answer
True
question
Utility maximization may be thought of as a process of fixing a budget line and finding which of a set of indifference curves is tangent to that line.
True
False
True
False
answer
True
question
The equilibrium condition for an interior solution to our utility maximization problem requires the per dollar marginal utility or "bang for your buck" of all goods to be constant.
True
False
True
False
answer
False
question
Which word makes the following statement true:
The second order conditions for utility maximization will be satisfied for a person who has ___________ preferences.
A.
Continuous
B.
Convex
C.
Unique
D.
Monotonic
E.
Marginal
The second order conditions for utility maximization will be satisfied for a person who has ___________ preferences.
A.
Continuous
B.
Convex
C.
Unique
D.
Monotonic
E.
Marginal
answer
B.
Convex
Convex
question
Pick the choice that makes the statement true.
If I have ___________________ preferences over two goods, my utility maximization problem will almost always lead to a corner solution.
A.
Cobb-Douglas
B.
Logarithmic
C.
Perfect Substitutes
D.
Perfect Complements
If I have ___________________ preferences over two goods, my utility maximization problem will almost always lead to a corner solution.
A.
Cobb-Douglas
B.
Logarithmic
C.
Perfect Substitutes
D.
Perfect Complements
answer
C.
Perfect Substitutes
Perfect Substitutes
question
If prices of all goods increase by a proportion and income increases by that same proportion, what will happen to the quantity demanded of good X.
A.
Increase
B.
Decrease
C.
Stay the same
D.
Ambiguous
A.
Increase
B.
Decrease
C.
Stay the same
D.
Ambiguous
answer
C.
Stay the same
Stay the same
question
Given an expenditure function one can derive
A.
Indirect Utility
B.
Marshallian Demand
C.
Hicksian Demand
D.
All of the Above
E.
A&C only
F.
A& B only
A.
Indirect Utility
B.
Marshallian Demand
C.
Hicksian Demand
D.
All of the Above
E.
A&C only
F.
A& B only
answer
D.
All of the Above
All of the Above
question
If I buy Tacos and Nachos (2 good world) and Nachos are an inferior good (over the relevant range) what must be true.
A.
Tacos must be a normal good
B.
An increase in the price of Nachos causes fewer nachos to be consumed
C.
The Engel curve for Nachos has portions with a negative slope.
D.
All of the above
E.
A&B only
F.
A&C only
A.
Tacos must be a normal good
B.
An increase in the price of Nachos causes fewer nachos to be consumed
C.
The Engel curve for Nachos has portions with a negative slope.
D.
All of the above
E.
A&B only
F.
A&C only
answer
F.
A&C only
A&C only
question
The substitution effect __________________.
A.
Is ambiguous in direction
B.
Is all that is measured by a Marshallian demand curve
C.
Can be thought of as movement along a single indifference curve.
D.
Is not allowed for inferior goods.
A.
Is ambiguous in direction
B.
Is all that is measured by a Marshallian demand curve
C.
Can be thought of as movement along a single indifference curve.
D.
Is not allowed for inferior goods.
answer
C.
Can be thought of as movement along a single indifference curve.
Can be thought of as movement along a single indifference curve.
question
A Giffen good, which exhibits an upward sloping demand curve __________________.
A.
occurs whenever an inferior good's income effect overcomes the substitution effect.
B.
occurs whenver a normal good's income effect overcomes the substitution effect.
C.
occurs only when there is no income effect.
D.
is commonly observed in practice.
A.
occurs whenever an inferior good's income effect overcomes the substitution effect.
B.
occurs whenver a normal good's income effect overcomes the substitution effect.
C.
occurs only when there is no income effect.
D.
is commonly observed in practice.
answer
A.
occurs whenever an inferior good's income effect overcomes the substitution effect.
occurs whenever an inferior good's income effect overcomes the substitution effect.
question
A hicksian demand curve ____________.
A.
Is also refered to as an uncompensated demand curve.
B.
Always slopes downward.
C.
Depicts the expansion path that occurs when price changes induce a move to higher indifference curves.
D.
Always has a flatter slope than the corresponding Marshallian demand curve.
A.
Is also refered to as an uncompensated demand curve.
B.
Always slopes downward.
C.
Depicts the expansion path that occurs when price changes induce a move to higher indifference curves.
D.
Always has a flatter slope than the corresponding Marshallian demand curve.
answer
B.
Always slopes downward.
Always slopes downward.
question
product rule f(x)g(x)
answer
f(x)g'(x)+g(x)f'(x)
question
quotient rule f(x)/g(x)
answer
g(x)f'(x)-f(x)g'(x)/g(x)²
question
Chain Rule f(g(x))
answer
f'(g(x))g'(x)
question
Young's theorem
answer
cross-partial derivatives are equal no matter what order order you take them
question
shadow price
answer
how much more of the thing being optimized you would get if I relaxed the constraint by 1 unit
question
envelope theorem
answer
if y=f(x,a) then dy/da=df(x)/da
question
completeness
answer
can make choices, is informed
question
transitivity
answer
choices are consistent. homothetic - IC curves never cross
question
continuity
answer
if A is preferred to B, then goods close to A are also prefered to B
question
monotonicity
answer
more is better
question
convexity
answer
averages preferred to extremes
question
Cobb douglas
answer
U=X^aY^b
MRS=aY/BX
Marshillian demand: x = aI/(a+B)Px y=BI/(a+B)Py)
concave IC curve
MRS=aY/BX
Marshillian demand: x = aI/(a+B)Px y=BI/(a+B)Py)
concave IC curve
question
Perfect substitues
answer
U=aX+BY
MRS = a/B
straight IC line
MRS = a/B
straight IC line
question
perfect compliments
answer
U=min[aX,BY]
MRS = 0, infinity, no tangency
L shaped IC line
MRS = 0, infinity, no tangency
L shaped IC line
question
CES (constant elasticity of substitution)
answer
U=[aX^p+BY^p]^1/p
almost everything cancels when finding MRS
almost everything cancels when finding MRS
question
Hicksian demand
answer
holds U constant
E minimizing level of goods to achieve U
E minimizing level of goods to achieve U
question
Shepard's Lemma
answer
∂E*/∂Px=hx
question
compensated demand
answer
hold P of other goods and U constant
hicksian
substitution effect
can be found from E* function by differentiation with respect to that good's price
hicksian
substitution effect
can be found from E* function by differentiation with respect to that good's price
question
Slutsky's equation
answer
∂X/∂Px=(∂hx/∂Px) - (∂x/∂I)(x*)
question
normal goods
answer
H is steeper than M
question
inferior goods
answer
M is steeper than H
question
compensating variation (CV)
answer
E1-E0 after price change
change in expenditure, uses original IC curve
change in expenditure, uses original IC curve
question
equivalent variation (EV)
answer
uses new utility level
max amount someone would pay to prevent price change
max amount someone would pay to prevent price change
question
Marshillian consumer surplus
answer
splits between CV and EV
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